The Aftermath of Egypt

Mobile phones and high speed internet access are becoming indispensable tools for developing countries seeking to boost productivity and job growth but technology is also becoming the dictator's worst nightmare.

For those not fully engrossed by the fury of cyclone Yasi, including its impact on already stretched global commodity prices, events in Egypt have been offering an alternative window on a troubled world.

From a market perspective, there has been little immediate impact. U.S. markets fell 1.8% on the Friday when the first pictures of rioting Egyptians came across the television screens. Gold prices surged, as the news readers like to say, by US$22 an ounce but this was a rise of just 1.7%, hardly a panic stricken flight from fear. A day or two later, markets appeared to regain their poise and, so far this month, the S&P 500 has added 2.7%.

There was close to universal agreement among commentators that the Egyptian riots would not jeopardize freedom of movement through the Suez Canal. Evidence to the contrary might have been a game changer for financial markets.

Also, Egyptians have not recently displayed territorial or political ambitions that would necessarily worry other countries if there was a change of government. Nor do they have abnormal access to strategic industrial materials or foodstuffs. Their lack of nuclear weaponry means people take the country less seriously than Pakistan, for example, which is less significant on virtually every score except the possibility of a madman accessing a nuclear warhead launch control.

The main lesson from Egypt, and Tunisia a few days earlier, is the growing capacity of a downtrodden population to rise against oppression.

Throwing off the yoke of unelected heads of government is nothing new. India, the Czech Republic, South Africa, modern day Germany, the Ukraine, France and the United States all emerged from popular uprisings. Nonetheless, there is a hint in the Egyptian uprising - as there was in Iran in the aftermath of its apparently stolen election in June 2009 - that technology is making a difference.

The Mubarak regime tried to close this conduit but the internet and mobile phones permit people to manoeuvre, organize and publicise their cause in a way that those in east Germany and the Soviet Union, for example, could not prior to 1990.

The spies and intelligence agents who have acted as the backbone of totalitarian regimes may be insufficiently swift to shut down dissent fomented with the latest technology. The ability of technology to help bring large numbers onto the streets at short notice raises the possibility that more such events will catch western governments and their own intelligence agencies by surprise. The related risk is that similarly public shows of force could happen in strategically more vital locations than Egypt or Tunisia.

Topping the list of countries with some of the ingredients for a popular uprising as well as having more economic clout are Saudi Arabia, in the same geographic neighbourhood, and China. In each case, the financial market impact would be far greater.

Neither country has any prior history of democracy. Neither has rulers who have shown any sign they would go quietly if asked. Both have populations with rising or relatively high expectations about the quality of life they should enjoy. In both instances, the regimes have adroitly forestalled greater democracy through high or improving living standards, something the Mubarak regime failed to do.

Saudi oil wealth has enabled the monarch and his princes to report relatively high living standards for a small but fast growing population while the family partied in ways that are illegal at home.

According to International Monetary Fund statistics, Saudi per capita GDP in 1980 was 86 times higher than in China but declined in the subsequent 30 years at a 1.8% annual rate. Meanwhile, per capita growth in China averaged an amazing 8.9% a year. By 2009, Saudi per capita GDP was a little under four times that of China and the gap was continuing to narrow.

Given its natural endowment, Saudi residents could justifiably complain that they have been undershooting their potential.

The energies of China's leaders have been dedicated to ensuring people are sufficiently distracted by the prospect of rising wealth that they do not think too frequently or too loudly about democracy. In this, they have performed outstandingly well.

Some tests of this strategy are becoming evident. A housing price bubble is reducing affordability in major cities. Far more troubling for China's stability are reports of wage inflation. This risks eroding China's competitive position in manufacturing and reducing job opportunities.

Having to pay extra for skills in short supply and possibly close less competitive industries could show people that a rising tide no longer lifts all the boats. The arguments for forgoing democracy in exchange for economic progress will become hollow if the chance of additional wealth is tilted in favour of those in relatively scarce occupations or selected localities and not generally available.

Fortunately, the leaders of both the middle east and China understand better than many despots the importance of allowing people to share the wealth as the trade-off for staying in power. Fortunately, too, they have the economic and financial resources to buy themselves time. Unfortunately, they will not be able to hide any failures when global comparisons can be made with the click of a mouse or, even more simply, with the swish of a finger and large numbers called onto the streets to protest before the security forces get a chance to stifle the unrest.

If you liked this article and would like more by email, subscribe! It's free.

[Bold fields are required]

Your details

Your alternate email address is used only if messages to your primary email address are returned to us.

Mailing addressEmailAlternate emailFirst nameLast name

Industry

Do you work in the financial services industry?

Yes No

This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity.
Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.